QUESTION 1
You are a senior trainee accountant in your audit firm’s technical department. Your
responsibility is to advise fellow staff members, conducting an audit, on statutory and
corporate governance matters.
One of the firm’s clients is the Tesla Group. All companies in the group manufacture retail
or wholesale electronic vehicles and related accessories. T Tesla, Inc. is an American
multinational automotive and clean energy company headquartered in Austin, Texas,
which designs, manufactures and sells electric vehicles, stationary battery energy
storage devices from home to grid-scale, solar panels and solar shingles, and related
products and services.
The group is structured as follows: Tesla Ltd holds 60% of Volkswagen, 80% of Ford(Pty)
Ltd and 70% of Nissan. Ford(Pty) Ltd holds 100% of the shares in Porche Ltd.
Your firm Thanos Ltd holds the appointment, as auditors of all companies in the group
and the various audit teams are currently engaged in the 31 August year end audit.
You have received the following details about your trainees:
Scenario 1
Tony Stark on the audit of Nissan found that an amount of R 1,6 million in trade creditors
owed to Bruce Wayne(Pty) Ltd. This represents the purchase during August of a machine
that manufactures electronic vehicle, specifically, SUVs that can travel 400 km on a single
charge. Bruce Wayne(Pty) Ltd is fully owned by Jordan Peterson and two of the four
directors of Nissan who have no shareholding at Nissan.
Tony also found out the CFO at Nissan is Jordan Peterson’s wife Sandra. She had
negotiated the loan on behalf of Nissan. Moreover, she had assisted her son Derek to
buy shares at Nissan at a lower price. After all she assisted in solving Nissans liquidity
issues.
Tony was offered R250 000 as a gift at the beginning of the audit engagement. Tony used
half of the money to support a nearby orphanage and donated the rest for war victims in
Palestine. Tony found that all the source documents including purchase documentation,
for example, a purchase order, delivery note, invoice and entries in the records, were
correct. However, the Sandra’s benefits were not disclosed in the notes to financial
statements.
Scenario 2
Hunter Biden, was selected to lead the audit of Ford (Pty) Ltd. He found out the carbon
emission in Ford was 60% above what they disclosed. The CEO stated that this minor
deviance was because of measurement errors. He also mentioned that he was close
friends with government officials. He casually mentioned the disappearance of an auditor
who ‘did not know how to do business ‘. Furthermore, the company has made a number
of loans during the past year. Several bank transfers were made
One was a R150 000 expenditure to the Bahamas which was documented as directors
travelling allowance. This was spent by Paul, the managing director of Porche Ltd who
also serves on the board of Ford(Pty) Ltd.
REQUIRED
(a) Elaborate on the corporate governance issues mentioned in each of the scenarios
(20)
(b) Synthesis all the information learnt from the professional codes of conduct, ethics,
South African legislation and King codes to give recommendations and guidance
to the above scenarios (10)
(c) How would you advise each of the trainees under your supervision?(6)
(d) Share your audit engagement strategy justifying each phase (9)
QUESTION 2
You are an audit senior at Trumps Auditors Incorporated (B&K), currently involved in the
finalisation stage of the statutory annual audit of Pfixer and its two subsidiaries, Moderney
Medical Scheme and Lohnson and Lohnson which produced vaccines for Covid 19,
Monkey pox and the HIV virus for the financial year ended 30 June 2024.
All the pharmaceuticals are listed on the Johannesburg Stock Exchange (JSE) listed
company in the health care industry of South Africa with Moderney being on the
Alternative Stock Exchange (AltX). They recently branched off their operations to invest
in Neural ink, a brain chip that would help the crippled and visually impaired. Quite
recently a paraplegic had gained full function of their arms, back and legs due to this new
technology.
The final materiality for the 2024 statutory annual audit is set at R3 billion for Moderney
was R1,2 billion for Lohnson and Lohnson for the consolidated financial statements of
Pfixer.
Moderney is an independent non-profit medical scheme governed by the Medical
Schemes Act and regulated by the Council for Medical Schemes. It has assisted United
nations in various wars in the Democratic Republic of Congo, Palestine, Ukraine and
Libya. It has a good record of diligently paying their clients’ qualifying medical costs and
providing excellent service to its members.
By separating medical scheme and administration functions between Moderney and
Lohnson, the Pfixer group of companies has been able to gain a significant competitive
advantage by expanding its offerings to the health care market without contravening the
Medical Schemes Act. These services and products include for example the purchase
and repackaging of vitamins as well as endorsed weight management products leading
to huge profit margins.
Several pharmaceuticals entered into the market reducing Pfixer profit margin. In order
to secure their share prices, Pfixer doubled the actual value of their earnings per share.
You found discovered that the CEO of Pfixer Lucius Black substituted important
ingredients in their vaccines with cheaper less efficient ones. Moreover, they had
exaggerated the efficacy of their vaccines. A decision was taken at a board meeting
before year end, to procure the necessary repackaging and labelling old drugs and
marketing them as new innovations that would cure mental illness. Lucius had a 25 % of
Pfixers while his son held 10%. Lucius emoluments were not disclosed in the notes to
financial statement.
His best friend Vivek headed the audit committee. Lucius and Vivek had extravagant
holidays spending up to R1 million which they justified as necessary since they brought
in billion dollar revenues. Hunter his stepson owned the marketing company that
rebranded and advertised the old drugs as new, exaggerating their efficacy. Hunter gave
his father a lucrative discount. A whistleblower working in the laboratories recently died
in a car crush.
REQUIRED
(a) Determine whether a reportable irregularity exists in terms of the Auditing Profession
Act regarding Pfixers operations (13)
(b) Recommend an audit engagement strategy suitable for this scenario(13)
(c) Discuss the audit evidence and sampling techniques you would use in this case
study(10)
(d) Show how you will use information technology throughout the audit process(9)
QUESTION 3
a) Explain whether each of the scenarios is permissible in terms of the Code of Ethics
b) Discuss the role of the audit committee, King codes in ensuring governance in an
organization of your choice
c) Critically analyse the role and place of the internal audit activity in the
organisational plan of an organization. Use examples
Please provide havard referencing for nthis assignment questions
1 answer